Jerash Holdings (US) sees 4.3% revenue increase while investing in long-term capacity expansion and diversifying customer base despite lower gross margins

OPERATOR - (00:00:28)

Good day everyone and welcome to the Jerash Holdings (US) fiscal 2026 second quarter financial results. At this time, all participants are placed on a listen only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Roger Pondell, Investor Relations. Sir, the floor is yours.

Roger Pondell - Investor Relations - (00:00:50)

Thank you very much, Matt Good morning everyone. Welcome to Jerash Holdings (US) fiscal 2026 second quarter conference call. I'm Roger Pondell with Pondell Wilkinson, Jerash Holdings (US) investor relations firm. On the call today from the company are Chairman and Chief Executive Officer Sam Choi, Chief Financial Officer Gilbert Lee, and Eric Tang, who leads the Company's operations in Jordan. Before I turn the call over to Sam, I want to remind our listeners that today's call may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements are subject to numerous conditions, many of which are beyond the Company's control, including those set forth in the Risk Factors section of the Company's most recent Form 10K as filed with the Securities and Exchange Commission and copies of which are available on the SEC's website at www.sec.gov along with other company filings made with the SEC from time to time. Actual results could differ materially from forward looking statements and Jerash Holdings (US) undertakes no obligation to update any forward looking statements except as required by law and with that behind us, I will turn the call over to Sam Choi. Sam.

Sam Choi - Chairman and Chief Executive Officer - (00:02:25)

Thank you Roger. Despite ongoing trade uncertainties, we continue to experience robust and growing demand from our long standing customers and newly established strategic partners. Jordan is increasingly recognized as a preferred manufacturing hub for global brands seeking to diversify their supply chains beyond Asia. Apparel exports from Jordan to the United States at a current effective Tariff rate of 15% remains significantly more favorable than other major sourcing countries where rates range from 20% to more than 60%. In addition, Jordan maintains free trade agreements with other key markets including the EU, UK and Canada. Furthermore, Jordan's labor framework, which enables manufacturers to contract skilled foreign workers, further enhances our production quality and operational efficiency. This labor flexibility combined with favorable trade conditions, reinforces Jerash Holdings (US) position as an attractive strategic sourcing partner for global brands. Navigating ongoing economic shifts in late June, we successfully completed the expansion of our existing manufacturing facilities, increasing our production capacity by approximately 15%. This additional capacity was much needed to support growing demand from our global customers and strategic partners. Looking ahead, we are receiving continued requests for even greater capacity, which has prompted us to initiate a Long Term Expansion Plan this plan includes evaluating potential acquisitions and developing our own land. This initiative is designed to ensure that Jerash Holdings (US) remains well positioned to meet evolving market demand and sustain our competitive edge in the global apparel industry. As part of our ongoing strategy, we continue to successfully diversify both our customer base and product mix. This effort was aimed at enhancing year round production stability and reducing the impact of seasonality on our business. While we anticipate these changes will strengthen our long term growth, we do expect a slightly lower average gross margin in the near term as order volumes for our expanded product offerings continue to scale in the coming years. Our goal is to gradually improve gross profit margins to approximately 20%. We expect to achieve this through increased production automation and the benefits of economies of scale during this important period of progress for the company. We remain vigilant about the potential impact of regional geopolitical uncertainties and involving tariff developments. These factors are being closely monitored as we advance our growth strategy to ensure resilience and long term success. With that, I will now turn the call over to Eric who is in charge of our operations in Jordan.

Eric Tang - Operations Lead in Jordan - (00:06:44)

Thank you Sam. As we have noted previously, we believe the Recent shifts in U.S. tariff policy have accelerated the urgency with which businesses are looking to diversify their manufacturing footprint and we are seeking ways to accommodate growing capacity demands. We have successfully completed shipping the initial phase of the major collaboration order of more than 3 million pairs of gold shorts from our strategic partnership with Hanso Textile, a leading South Korea based global apparel group that supplies a wide range of garments to major international retail and fashion brands. Shipment of second phase is now scheduled to be completed by end of November. Production and shipments for the rest of the order are scheduled to continue through February of 2026. We are actively collaborating with both Hanso Textile and its customer, a leading U S based multinational and omnichannel retail corporation, to discuss additional synergies and foster continued cooperation and growth together. Shipping logistics in the region have returned to normal. Both the Haifa and Aqaba port are fully operational for shipping finished goods and receiving raw materials. We are optimistic that the nearly two year period of transportation challenges is behind us allowing us to resume uninterrupted logistics support for our global customers. We continue to receive new new business inquiries and buyers from our major customers have submitted increased order projections for 2026. We are currently awaiting confirmation of purchase orders to begin trending production schedules beyond our current capacity which is fully booked through February. These new opportunities reinforce our growth outlook and and validate our strategy focusing on diversifying both our customer base and product mix. This approach enable us to optimize production capacity and drive stronger top line performance and margins throughout the year. As Sam mentioned earlier, we are looking at different ways to expand expand our production capacity. The current collaboration expansion with the Jordanian Ministry of Labor to develop an extension adjacent to our existing facility in Alhazar is in progress. Upon completion, which is now expected in the second half of calendar year 2026, should add another 5 to 10% in total production capacity. Additionally, we are seeking other factory acquisition possibilities as well as development of our own land. We look forward to keeping you updated of our progress. With that, I will now turn the call over to Gilbert to discuss our financial results. Gilbert, please.

Gilbert Lee - Chief Financial Officer - (00:10:34)

Thank you Eric Revenue for the fiscal 2026 second quarter grew 4.3% to $42 million compared to 40.2 million in the same quarter last year. The increase was primarily driven by higher shipment volumes to the company's US Customers, supported by a more diversified customer base. Starting this fiscal year, gross profit was $6.3 million for the fiscal 2026 second quarter, compared with 7.1 million in the same quarter last year. Gross profit margin for the quarter declined to 15.0% from 17.5% in the same quarter last year, which benefited from catch up production of some outerwear that carried higher margins. Originally Scheduled for the first quarter of fiscal 2025, the decrease was primarily driven by the diversification of broader customer base and a shift in product mix which resulted in a lower average gross margin. Operating expenses decreased to $5.2 million in the fiscal 2026 second quarter from 5.9 million in the same quarter last year. The decrease was primarily due to better control of export costs and lower stock based compensation expenses. Operating income was $1.09 million in the fiscal 2026 second quarter, slightly lower than $1.13 million in same quarter last year. Total audit expenses were $456,000 in the fiscal 2026 second quarter, compared with 364,000 in the same quarter last year, primarily reflecting the increase in financing needs to support business growth. Income tax expenses were $154,000 in the fiscal 2026 second quarter compared with $106,000 in the prior year quarter. The effective tax rate increased to 24.3% for the three months ended September 30, 2025, compared with 13.7% in the same quarter last year. Net income.